Monday, December 18, 2006

In China's pocket

The high-profile mission to China of key U.S. economic officials looked like another predictable fizzle. The delegation, headed by Treasury Secretary Hank Paulson and Federal Reserve chairman Ben Bernanke, was long on state dinners and photo ops, short on real progress.

That's because the Chinese have learned to play their U.S. trading partners like a soothing violin, and we Americans are all too willing to dance to the tune. Despite the precarious condition of the U.S. dollar, the Chinese central bank keeps lending us dollars by the hundreds of billions, so that we can keep buying their cheap products. The more we owe them, the less leverage we have.

As the cliché used to have it, damn clever, these Chinese. A better interpretation would be: Damn stupid, these Americans.

Bernanke, Paulson and company make a big deal of China's deliberately undervalued currency. By intervening in money markets to keep the yuan cheap, China makes its products artificially discounted.

But the yuan is the least of America's problems. If the Chinese actually did what Paulson and Bernanke say they want and stop pegging the yuan to the dollar, it could trigger an international run on the dollar. What the U.S. officials really want is the appearance of progress, and very gradual appreciation of the yuan, to head off pressure from Congress for tougher measures.

However, slow adjustment of the yuan, which is already occurring, will hardly make a dent in the trade deficit with China. The far bigger problem is China's entire economic system.

China has managed to combine something that in theory can't exist: a Leninist one-party state, and a fiercely efficient pseudo-capitalist economy. Since President Bush I, American leaders have insisted that as China becomes more capitalist, it will become more politically liberal. But tell that to opposition leaders who keep being jailed. China is no closer to a Western style democracy than it was on the day of the Tiananmen Square massacre of 1989.

China's mercantilist economy defies norms of free trade. But American industry finds it too convenient to use China as a low-wage production zone to complain very much.

So the U.S. government goes through the motions of protesting China's subsidies to industry, its theft of American intellectual property, its coercive demands for the transfer of sensitive technologies by U.S. business partners and hardly bothers to protest the slave-like labor conditions in many Chinese factories. The Chinese make soothing noises, not much changes, and the U.S.-China trade imbalance keeps going through the roof.

Last June, the AFL-CIO filed a petition under Sec. 301 of the 1974 Trade Act, which makes brutal labor conditions in an exporting country an unfair trade practice, just as theft of intellectual property is an unfair trade practice. The petition described: a nightmare of 12-hour to 18-hour work days with no day of rest, earning meager wages that may be withheld.

The factories are often sweltering, dusty and damp. Workers are widely exposed to chemical toxins and hazardous machines, and suffer sickness and death at the highest rates in world history. They live in cramped dormitories, up to 20 to a room, with each worker's space limited to a bed in a two-tiered bunk — comparable in space, discomfort, and privacy to prison cells in the United States. Ten to 20 million workers in China are children. No one knows the precise number, because statistics of that kind are state secrets. The severe exploitation of China's factory workers and the contraction of the American middle class are two sides of a coin.

In rejecting the petition, the Bush administration did not deny the conditions, but cited ongoing consultations. Yet, last year's annual Report of the U.S. Congressional-Executive Commission on China declared that the Beijing government had simply "avoided discussions with the international labor community on Chinese workers' rights." And labor conditions were not even on the Paulson-Bernanke agenda.

In the early 1990s, China was a lot weaker economically, Americans were a lot less dependent on Chinese lending, and China eagerly wanted entry into the World Trade Organizations. But three administrations Bush I, Clinton, Bush II gave up that diplomatic leverage and worked to welcome China into the WTO in exchange for mostly empty promises. Why? Because American business elites were so eager to make more deals.

So, after the Paulson-Bernanke trip, once again nothing much will change, and we will be deeper in hock to Beijing than ever.